…the US$80M equity. Whose money?

IN Part 2, we looked at solar farms as an additional option to the Amaila Falls Hydropower

Project (AFHP) in the context of the eighty million United States dollars (USD80m) allocated to it as equity. We concluded that establishing solar farms was a credible option to the AFHP. In this part, we will try to determine who owns the USD80m in equity, since both the Government of Guyana (GoG) and the Kingdom of Norway (KoN) seem to claim rights to it. However, in order to understand this dilemma, we need to examine, among others, the nature of the financial agreement and the procedure for determining project funds. Let us first try to understand the nature of the US$80m equity.
What is the nature of the financial agreement?

In the first instance, the Administration Agreement (the Agreement) governing the financial arrangements between the GoG and the KoN was signed between the Royal Norwegian Ministry of Foreign Affairs and the International Development Association (The World Bank) on 9th October, 2010. Part of the Agreement reads thusly “on behalf of the International Development Association (the “Association”), as trustee (the ”Trustee”), … the Royal Norwegian Ministry of Foreign Affairs (the “Contributor”), shall make available as a grant, subject to Parliamentary appropriations, the sum of up to one and a half billion Norwegian kroner (NOK 1,500,000.000) (the “Contribution”) for the Guyana REDD-Plus Investment Fund (the “GRIF’)”.

We note that the currency is not in US dollars; however the maximum earnings equivalent in USD available to GoG, under the Agreement, is USD 250m. The Agreement also establishes the GRIF. Secondly, the financial mechanism of the Guyana-Norway Agreement is the GRIF. Thirdly, the Agreement establishes the World Bank as Trustee and, finally, the word ‘Contributor’ refers to the KoN. Interestingly and, perhaps to its own detriment, Guyana was not allowed to be a signatory to GRIF Agreement.

The Agreement also requires Norway to deposit payments earned by Guyana, in installments, into the Trustees account. We shall later review Guyana’s earned payments based on data from Norway International Climate and Forest Initiative (NICFI), the agency responsible for the payments on behalf of the KoN. In addition, the Trustee, on behalf of the KoN, shall administer the payments in accordance with the terms of the Agreement. Of particular importance is the “…recognition that deposits to the GRIF are provided for forest climate services provided by Guyana [and] Guyana shall be the beneficial owner of the amounts in the GRIF”. Whether, as beneficial owner of the funds in the GRIF, Guyana can indicate how they are used, is a question that will be answered in the next sections. However, let us briefly examine the functions of the GRIF.

The GRIF in Summary
The Agreement provides for the KoN to “…make payments to the GRIF for Guyana’s forest climate services (payments) [and] these payments will be performance-based”. The management of the GRIF is performed through a GRIF Steering Committee, which is the “oversight and decision-making body” on how funds earned under the Guyana-Norway Agreement shall be invested.

The GoG chairs the Steering Committee, and its members are the GoG and the KoN. Decisions of the Steering Committee are made by consensus. Consequently, the GRIF Steering Committee will review all GRIF investments and investment proposals prepared jointly by the GoG and Partner Entities before making any decision for funding from the monies held by the Trustee. In short, the GRIF, through it Steering Committee approves funds for all projects and allocations of funds for investments.

It is important to note “…the Trustee may make provisional commitments, transfer and/or use the GRIF resources for any purpose approved and in the amount allocated by the GRIF Steering Committee”. However, the Trustee cannot utilize GRIF funds without the approval of GRIF Steering Committee. So the question that arises is whether the GRIF Steering Committee approved the USD80m. However, before we attempt to answer this question, we need to determine characteristics of the monies earned under the Guyana- Norway Agreement.

Is the US$80m equity a payment, or is it a grant?
I submit that the description of the earned payments under the Guyana- Norway Agreement is critical to its destination, allocation and categorization. The absence of a clear description is a clear and present danger to the USD80m equity. Let us have a look at the various types of description of earned payments, as contained in the many documents. In the low carbon development strategy (LCDS) 2013, earned payments are referred to as “payments accumulated”; “results based payments” and “payments for forest climate services”.

Under the Agreement it is referred to as a “grant”; “payments for forest climate services “and “performance based payments”. The Joint Concept Note (JCN) 2013 characterizes earned payments as “financial support for REDD-plus results”; “results based” and “performance based”. The ToR of the Norconsult Review of the AFHP characterizes the earned payments as “Guyana uses the funds from Norway…” and with respect to the US$80m, terms such as “contribution to Guyana’s equity share in AFHP”and “Norway has committed funds to the AFHP” are used.

Finally, according to the Norconsult Report on the Review of the AFHP, we see statements as bold as “NICFI, may suggest some of the US$80 million presently deposited at IDB being used for project preparation” and “As a reward for Guyana’s successful efforts to preserve its rainforest since 2009, Norway has since 2010 paid about US$150 million to Guyana.”

We will observe, over the next paragraphs that at no time were there ever any sum greater than the cumulative sum of USD 70.0m received as payments by the Trustee. It is difficult to fathom how possible it may be for GoG to have received about US$150m, when the Trustee had never received any amount greater than the cumulative sum of US$70M, except that the Norconsult Report has included the US$80M equity.

Clearly, these multiple descriptions create confusion. And certainly, it does appear that the KoN is of the view that it has rights to dictate over the US$80M. But is that really accurate? Let us look at the earned payments by Guyana since the first payment in 2010.

According to NICFI’s records, we glean the following:

a) in 2010 earned payment was USD 40m
b) in 2011 earned payment was USD 45m
c) in 2012 earned payment was USD 35m
d) in 2013 earned payment was USD 40m
According to these records, up to year the 2013, a total of USD160m was earned as payment by Guyana. However, as we shall see, there is no record that this sum was paid into the Trustee’s account for use by the GRIF.

We also submit that based on NICFI’s own records, monies earned under the Guyana Norway Agreement represent payments, of various types, for forest climate services, since under the Agreement, Norway “will make payments to the GRIF for Guyana’s forest climate services.”

It seems clear to me that the USD 80m ought to be classified as earned payments for climate services and should be paid into the Trustee’s account on behalf of Guyana, who is the beneficial owner. Lets us now examine GRIF’s Financial Reports in order to track these earned payments.

GRIF Financial Reports 2011-December 2015
A perusal of the Trustee’s Report on the Financial Status of the GRIF, prepared by the World Bank as Trustee shows that as far back as July 2011, and up to December 2015, each report stated that the “cumulative receipts” amounted to approximately USD 69.8m. At no time was this figure a lesser sum or a greater sum. Our only conclusion, based on these records, is that at all material times, the Trustee only had available for GRIF investments, a maximum of US$68.9M.

It therefore means that the US$80M equity was never paid into the Trustee’s account as provided for under the Agreement. Had it been paid into the account, the Trustee would have had cause to account for it and progammed it against an approved GRIF project.

There is no evidence of the AFHP ever being presented, discussed and approved by the GRIF Steering Committee as required under the Agreement, which represents a contrary bypass action by the GoG and the KoN. In fact, the ToR for the Norconsult Review of the AFHP states that, “Upon Guyana’s request, Norway aimed to support the transition to clean energy through a contribution to Guyana’s equity share in AFHP [and] In November 2014, Norway deposited 80 million USD to IDB to contribute to Guyana’s equity”.

However, Guyana’s LCDS 2013 states in clear term that “The Government is investing US$80 million as equity in the project – sourced from payments accumulated since 2009 under the Guyana-Norway partnership”. Both countries seem to be investing the same funds into the AFHP. However, it is clear who had control of the USD 80m; the KoN. And it is also clear that the US$80M equity was paid directly into the IDB, and we further understand that these funds are in an IDB holding account.

Juxtaposing Guyana’s earned payments according to NICFI’s records, the Trustee’s Report on the Financial Status of the GRIF and the date when the USD80m was deposited, we conclude that USD80m was in some account in Norway, at least since 2012, since by then Guyana’s total earned payments equaled approximately USD 153m. The act of not paying in the earned payments into the Trustees account appears to be a breach of the Agreement since all payments earned are to be paid over by Norway into the Trustee’s account. This leads us to the queston as to why and who owns or has full or shared rights over the USD80m equity?

Who really owns the US$80M equity?
Let’s pause a bit before answering and first consider under what circumstances could the IDB have received this payment? According to the Agreement, the IDB is a named Partner Entity. The Agreement states thusly, “Partner Entity” means the Inter·American Development Bank (“IADB”), the Association [The World Bank], and any fund, program or specialized agency”.

The Agreement further sets out the responsibilities of Partner Entities which includes “reporting to the Steering Committee annually on the progress of implementation of its activities,”; ensuring that each Project proposal it submits to the Steering Committee is consistent with the LCDS”; and “maintaining books, records, documents and other evidence… to sufficiently substantiate the use of the GRIF funds transferred to it.”

Based on these excerpts, it is clear that the Agreement contemplated that earned funds will be transferred from the GRIF to a Partner Entity. Therefore we conclude that the IDB could not have received the USD 80m equity in the capacity of a Partner Entity. So, in what capacity is the money held by the IDB? We offer no answer to this question since what really matters is that the earned funds are paid into the Trustee’s account.

Recognizing that Guyana’s earned payments commenced as early as 2010; that the Agreement requires a ‘pay in’ to the GRIF; that there is no known GRIF decision to transfer the USD80m; that there was no GRIF approved project for the USD 80m equity; that there is no GRIF project cycle for the USD 80m equity, which involves website postings for comments by stakeholders and the public; in our opinion, the US$ 80M equity belongs to the GoG as earned payments.

We therefore recommend that Guyana, as chair of the GRIF Steering Committee, request that the US$80M equity be paid into the Trustee’s account in accordance with the provisions of the Agreement and be programmed to a project or projects consistent with Guyana’s goal to transition its economy into clean and renewable energy use.

As to why the US$80M was paid directly into an IDB account, is it therefore possible that the GoG and the KoN bypassed the Trustee and the GRIF and paid the US$80M equity, in order to avoid the ‘Guyana as beneficial owner’ clause in the Agreement? And, if that was the case, it then serves as an additional reason for the US$80M equity to be paid in the Trustee’s account for use by Guyana in a GRIF approved clean energy investment project.

Is there any interest being earned on the US$80M equity while it sits in an IDB holding account? If yes, will it be transferred to GoG? Are there fees charged by the IDB for holding these funds? These and other similar questions are quite legitimate and deserving of answers.
In Part 4 I shall examine options available to Guyana for the US$80M earned payment for climate services.

Mr Gary A R Best is a retired Rear Admiral and former Chief of Staff of the Guyana Defence Force. He is an Attorney at Law and the Presidential Advisor on the Environment. He is a PhD candidate at the University of the West Indies. He holds a BSc in Nautical Science (Brazil) and Masters Degrees from the University of the West Indies and the University of London. He is also an alumnus of the National Defence University and Harvard Kennedy School. His research areas include, climate change governance, climate change finance, international relations and environmental law.

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